New SCM technologies make ERP integration easier

Not every company is as confident about integration when it comes to plugging best-of-breed SCM systems into a core ERP platform. ERP vendors have continued to build out their SCM capabilities over the last few years, and manufacturers have been favoring such packaged suites, lured by the convenience of having a single vendor for all of their support and licensing needs -- not to mention the promise of avoiding the challenge of integrating disparate applications.

Yet with the advent of new technologies such as Web portals, on-demand SCM applications and Web services like Service Oriented Architecture (SOA), the pendulum looks to be shifting once again. Integration is becoming less of an issue and best-of-breed is re-emerging as a viable option.

"A large number of companies are realizing that the classic, back-office ERP system is good for managing inside their four walls, but when they're looking to extend to the supply chain, these systems fall short," said Joshua Greenbaum, principal, Enterprise Applications Consulting, a consulting company specializing in enterprise software. "The best-of-breed vendors are also working hard at making the integration and on-boarding of new suppliers much, much easier than it is in the classic ERP suite world."

By opening up their platforms with support for Web services and new SOA architectures, major ERP vendors like Oracle and SAP are taking a somewhat calculated risk that could end up with them ceding ground to best-of-breed SCM makers. "They're hoping that very large manufacturing customers who are channel masters will dictate a certain amount of their software as the glue that pulls the supply chain together," Greenbaum said. "Once a suite vendor's integration technology gets established in a given supply chain, it gives that vendor a hunting license to move downstream and get more suppliers. The tradeoff is a (best-of-breed) provider could do that as well."

Best-of-breed SCM vendors like Kinaxis contend that the SOA environments now offered by ERP suite vendors reduce the burden of integration. Not surprisingly, the suite vendors maintain they are no panacea. "SOA provides a framework in which the integration issue can be addressed, but it's not magic -- there is still work to be done on both sides," says Jon Chorley, vice president, supply chain management strategy, at Oracle.

Moreover, Chorley points out that larger companies like Oracle have a leg up on smaller suppliers in terms of having the resources and in-house technical expertise to exploit emerging technologies like SOA to fully reap the benefits of integration and modularity for application development.

Chorley says as long as Oracle and other enterprise suite vendors provide best-in-class functionality and offer their products in a "consumable" fashion that doesn't require a full-scale upgrade to access the new capabilities, they will be formidable competitors. "Do customers want best-of-breed capabilities? Yes they do," he says. "Do they want to buy from multiple vendors if they don't have to? The answer is no they don't."

According to Chorley, the drivers pushing manufacturers to minimize their vendor partnerships whenever possible are single-vendor support, lower total cost of ownership and a preferred relationship.

User chose Oracle to help move into SCM

For Pella Corp., a manufacturer of doors and windows, it is the preferred relationship status that keeps them a one-vendor enterprise software shop. When Pella was choosing an enterprise platform, it specifically looked for a vendor it could grow with into ancillary areas like SCM, according to Rick Hassman, director of corporate applications for Pella. As a result, Pella aligned with Oracle and today uses the full complement of Oracle manufacturing applications, including the advanced planning and other SCM components.

"We predetermined to have a core platform when we went down this route," Hassman explains. "When we choose a vendor, we want to partner with them and help build the applications. It's part of our continuous improvement (and lean manufacturing) mentality."

By having a single vendor, Pella is able to have input into the application feature set and it is also protected from losing core knowledge and skill sets if people move on. Because the company often does customization work to fill in capability gaps in its software, Hassman envisions few instances when he would bring in a non-Oracle component -- even with the open nature of SOA.

"We're starting to learn that we're really much better taking Oracle applications and filling in gaps because of our relationship with Oracle," he said. "There would have to be a fairly big disconnect or gain that we'd get in the functionality of a third-party application to overcome those other benefits."]]> The latest automation supply chain tools help companies avoid problems, or deal with them quickly if they do occur, to minimize damage to their brands.

When internal inspectors at Georgia Nut Co. discovered salmonella in the company’s pistachio products in March, they immediately instigated a product recall downstream to their customers—including Back to Nature Foods, a Wisconsin firm owned by Kraft Foods Inc. that used the nuts in trail mix—and launched an inquisition to locate and eradicate the source of the contamination.

Consumer confidence is a delicate issue, especially considering the recent spate of similar recalls affecting a variety of products, and executives understood the potential damage such an incident would do to the company’s brand. However, Kraft was prepared and had the ability to track and trace ingredients and products both downstream to retailers and upstream through its supply chain, and rapidly identified and recalled suspect shipments, and traced the contamination to its source—a supplier in California.

“As part of our food safety program, we have systems in place at both Kraft plants and external manufacturers that help identify potential issues before they become problems,” says Adrienne Dimopoulos, a spokesperson for Northfield, Ill.-based Kraft Foods. “We require extensive monitoring and quality testing throughout the production process, and we require that each supplier and external manufacturer have a food safety plan in place.”

Because Kraft caught the problem early, it was able to avert the potential damage to the company’s brand. However, other companies haven’t been as diligent about their supply chain practices, or as fortunate when issues arise.

More recently, Peanut Corp. of America (PCA), Lynchburg, Va., filed for bankruptcy under Chapter 7 in a Virginia court after salmonella in its products led to 600 people falling ill, and as many as eight deaths in the United States. Some 1,800 products were stripped from retail shelves in one of the largest recalls in U.S. history. The contaminant was traced to irrigation water at a Mexican farm that supplied the company. Under Chapter 7, the company liquidates its assets to repay creditors, rather than reorganize. PCA will cease to exist.

Risk exposure

These are just a few examples of risks that manufacturers are exposed to through their supply chains. Others include pathogenic outbreaks such as H1N1 flu (originally referred to as swine flu) closing factories or—even worse—borders; Somali pirates seizing the ship transporting your materials; earthquakes and hurricanes; wildly fluctuating transport and commodity prices; and, last but not nearly least, the economy. The survivability of one of your key component suppliers has become more than another “what-if” scenario in too many cases. And these are just the acute factors, the headline grabbers.

“Risk management has become a tremendous issue for the global supply chain,” says Bob Ferrari, an independent supply chain analyst and blogger. “[A severe incident] could literally take down your brand.”

The economic crisis has been particularly bad for manufacturers, says Ferrari. “In the age of Just-In-Time, a lot of companies really embraced Lean Manufacturing processes. When the downturn hit in the late part of 2008, production literally just stopped all over the globe. So now, basically, supply chains are sitting there without inventory, waiting for signs of recovery. In China, there are reports of thousands of factories that have shut down. This started in low-margin businesses like toys and apparel, and has spread to more robust industries like consumer electronics.”

Analyst Noha Tohamy at analyst firm AMR Research Inc., in Boston, agrees. Supply Chain Risk (SCR) has become one of her primary focus areas, and she conducts a quarterly survey of procurement executives to see what risks are top-of-mind and what strategies they are implementing to ameliorate them. “A lot of companies have seen a lot of their suppliers file for bankruptcy,” she says. For example, Toyota has more than 100 suppliers at risk of becoming financially insolvent. The results of the most recent AMR survey, conducted in February, showed that reduced consumer spending had become the top risk. In December, this issue was a distant sixth, following rising fuel costs, rising transportation costs, commodity price volatility, intellectual property infringement and supplier product quality failures. “This was the first time a demand issue became the top concern. It’s usually on the supply side. [Supply chain managers] don’t know what demand is going to look like post-recovery. They need to plan for the recovery and don’t know how to change their manufacturing or sourcing because they don’t know what’s going to come next.”

Collaboration key

The top mitigation strategy in that survey was closer collaboration with suppliers. “People have been doing collaborative business continuity planning for a long time, but what’s really new is the granularity they are going to. Dual sourcing and multi-sourcing for critical components is also on the rise. They don’t want to be reliant on one or a few suppliers, so if something bad happens to them, they aren’t compromised,” Tohamy says.

Mike Mekanik is trying to address just such a risk right now. As a project manager with Virginia’s Philpott Manufacturing Extension Partnership, Mekanik is trying to design a program for a major shipbuilder supplying the U.S. government. “They have a supply chain of about 2,000 suppliers, down from 3,600 18 months ago,” he says. “They have some suppliers where they represent 80 percent of the supplier’s business. But in many cases where they represent a smaller proportion of the output, the rest of it has disappeared and they are in trouble. That’s really frightening for the shipbuilder because they can’t just snap their fingers and materialize another source of components.”

According to Ferrari, the whole multi-sourcing approach is in the middle of an economic tug of war. “In some industries where supply chain is seen as a cost of doing business (rather than a core skill), their first reaction to the economy is to reduce costs and squeeze the supply chain to reduce the number of suppliers they are supporting. However, that increases risk to the brand and to the business. Whittling down the supplier base isn’t a good idea. Maybe the ones you keep won’t survive the economy. Maybe they are cutting their own costs and that will impact their service to you. All of that is becoming part of the executive agenda and giving a lot of procurement people sleepless nights.”

“Generally speaking, companies don’t spend enough time with their suppliers,” says Julie Fraser, principal industry analyst and president of U.S. operations for Cambashi Inc., in Boston. She adds that with the recent H1N1 flu issue and reduced travel budgets, they will be spending even less in the foreseeable future. “People who have implemented some kind of collaborative tools will have a huge competitive advantage. The people who have made the investment are pointing to it and saying, ‘This is my pay-off.’ There are a lot of vendors that offer these kinds of systems, but our research indicates that they haven’t been spread deeply into the supply chain.” In fact, Datacraft Solutions Chief Executive Officer Stephen Parker estimates that actual market penetration of any kind of kanban system is only around 20 percent, with less than 10 percent actually automated. Durham, N.C.-based Datacraft provides supply chain management solutions in a “software as a service” or SaaS, model. Parker says that in their rush to adopt Lean Manufacturing processes such as Six Sigma, many manufacturers have neglected the supply chain. “The build process is only one part of manufacturing. They’ve left out the supply chain.”

Attain traceability

Attilio Bellman, Ph.D., senior director, process industries, at Siemens IT Solutions and Services, in Norwalk, Conn., agrees with Parker’s estimates. “Even some packaging lines are very manual. The lack of control around track-and-traceability of products in the supply chain is a common denominator across all supply chains,” Bellman says. “I’ve visited many clients in the food industry. They don’t have automated ways to track recipes, for example. The work is mostly manual. The ability for very detailed track-and-trace of raw materials up and downstream is there. They just aren’t using it. People will tell you it’s OK to use manual solutions, but then they’ll tell you there are delays, and that they have to do larger recalls ‘to be sure’ they don’t allow contaminated or defective product into the market. I think companies generally don’t have the right tools in place.” However, that is gradually changing. In November 2008, AMR Research estimated that the supply chain management applications market will grow by 7 percent annually for the next five years, from $6.5 billion in 2008 to $9.2 billion in 2012. Furthermore, AMR suggested that the global recession would actually drive supply chain technology adoption.

“We did some executive forums and found that most people we asked said they didn’t have a risk strategy,” say Andrew Kinder, director of product marketing for SCM at Alpharetta, Ga.-based Infor Global Solutions, an enterprise software supplier. “They assumed that SCR was about natural events like hurricanes. These things are graphic, but they don’t represent the biggest risk.”

“The acute conditions, like swine flu, terrorism and bad weather, are very hard to predict,” adds Trevor Miles, director, product marketing at Ottawa, Ontario, Canada-based supply chain management solutions provider Kinaxis Corp. “The odds of you predicting one of these issues and it coming to pass are very remote. On the other hand, the chronic, day-to-day risks like intellectual property protection, quality control and rising prices, are more predictable and more manageable. Customers, supply…that’s where you can make a lot of difference.” Kinaxis, Infor and Datacraft all offer solutions that provide manufacturers with visibility into what is happening in their supply chains and the ability to collaborate more intimately with trading partners, something they universally agree is key to any mitigation strategy.

Risk management

According to Robert J. Schneider, managing principal, Risk Management, International Organization for Standardization (ISO), in Geneva, Switzerland, risk managers should work with senior management to embed risk management practices into all mission-critical points along the supply chain. The process should be a continuous engagement with the supply chain process for ongoing assessment and reassessment of the constantly changing supply chain environment.

Schneider identifies three key objectives of an effective supply chain risk management strategy:
• Identifying and prioritizing critical business elements
• Mapping the entire supply chain to show interdependencies
• Identifying potential failure points along the supply chain.

“The ultimate goal of an effective and comprehensive SCR management strategy,” says Schneider, “is to embed risk awareness into all the core elements of the organization, from the C-suite through supervisors and department heads across the various supply chain functions.”

Adds Kinder, “You need to formalize the process of identifying the risks and building them into your plan. Build risk assessment into your day-to-day operations. Build it into the day-to-day process and make it part of everyday life.” Kinder suggests four best practices for managing supply chain risk:
• Make every employee a Risk Manager. Leading companies in every industry are implementing solutions that empower their executives, managers and staff to proactively manage risk and stay alert to opportunities.
• Monitor and communicate corporate performance in real time. Enterprises must be equipped to quickly detect, notify and assign exceptions.
• Provide a shared foundation that allows all stakeholders to collaborate to resolve risks.
• Proactively measure performance and mitigate risk through continuous business process optimization.

For companies that want to reap S&OP’s potentially significant operational and financial benefits -- and remain competitive in today’s cutthroat business environment -- reassessing the traditional S&OP process is paramount.

Why Traditional S&OP Is Outdated

Consideration #1: It’s not your grandfather’s supply chain anymore

Thirty years ago, most manufacturers owned their own factories and controlled their own production. They had complete, detailed knowledge of the capacity, schedules, and costs of manufacturing. With direct control over all operations, companies could adapt quickly to changes in the marketplace (which were relatively slow to materialize) and restore the supply -- demand balance more easily. In the years since, a fundamental shift has taken place.

The new environment contains three primary dimensions of evolution which have fundamentally changed companies and how they operate:

• Outsourcing of supply and globalization of demand
• Speed of product innovation
• Increasing demand volatility

Today’s supply chains have evolved into multi-faceted and globally distributed relationships that exist across different time zones, cultures, and technologies. With limited visibility into the operations and constraints of third-party partners, it becomes more and more difficult to make decisions or take action, yet the velocity in which one must do so is greater than ever.

Growing supply chain complexity along with unprecedented volatility constantly challenges a company’s operations performance and demands a new S&OP paradigm that acknowledges the blurring of lines between planning and execution.

Consideration #2: It’s not just about planning

Even the best laid plans are out of date to some extent, as soon as you leave the planning meeting. The assumptions that go into the sales and operations plan are being stretched, pulled and threatened every day, and, having been made as long ago as perhaps a month, may already be out of date at the time of the S&OP meeting. Uncertainty in demand and supply inevitably leads to some degree of plan inaccuracy; with greater uncertainty comes greater risk to the plan.

While companies continue to focus on improving the planning process, more and more are putting equal emphasis on how they can enable the organization to deal with the fact that the plan will never play out “as planned.” An organization must be able to quickly sense changes and ensure that people are empowered to respond swiftly and accurately to drive action that is aligned with the goals and objectives defined in the S&OP meeting.

Today’s unforgiving business environment demands more frequent S&OP cycles, continuous plan performance monitoring, and collaborative analysis and decision making.

Consideration #3: The process is enabled by the right technology

Many consultants emphasizes the importance of process over technology; however, many of the industry’s analysts are now promoting technology as a fundamental enabler for S&OP, largely to overcome the limitation of Excel, which has been the predominant tool of choice (or as many would argue, due to lack-of-choice).

None suggest that a process should not be in place, but that new technology is critical to enabling a truly effective process.

The dimensions of change mentioned above (outsourcing, product innovation and demand volatility) have exposed serious limitations in the ability of legacy tools’ to keep pace with the activities of the company and the market. To try to accomplish the same level of visibility and rapid analysis manually using spreadsheets is next to impossible.

Outsourcing and globalization places key operational data that influences the S&OP decisions outside of the direct control of the brand owner, and is therefore more difficult to access, integrate and analyze. The speed of product innovation requires greater operational visibility and precision in the timing of new product release to gain market share while avoiding unnecessary excess and obsolete inventory on older products. Demand volatility driven by the purchasing habits of today’s fickle consumers requires flexibility in demand management like never before.

Most companies struggle to manage all of this within their formal, monthly S&OP processes. The problem is that with inadequate tools, the process can take longer than a month to complete, and when it comes to making decisions, the primary input data is out of date. Within this process, it is extremely difficult to detect significant change, and never time to respond to it.There is clear indication that the adoption of technology solutions that enable all the necessary capabilities is still in the early stages.

Modernizing The S&OP Process To Reflect Today’s Business Realities -- Four Capabilities You Need:

1. Scenario Management: “What-if” simulations are your best friend

S&OP is an exploratory process based upon many unknowns and assumptions. A key inhibitor to effective S&OP is a lack of the capability in which multiple “what-if” scenarios can be created and evaluated quickly and effectively.

Scenario Management is important in two distinct areas of the S&OP process -- consensus planning and response to plan deviations occurring inside the planning horizon.

One of the primary requirements of scenario planning is the ability to provide an environment in which all the people responsible for the respective business areas are able to collaborate in order to reach a compromise solution among all of the scenario options. Human judgment must be brought in to the process to allow competing and contradictory business objectives to be discussed and decided in an open forum.

For example, a supplier may agree to ramp up production of a component for a new product early because the sales numbers are trending above plan, and the inventory manager may need to agree to holding increased inventory of the component even though there is increased risk.

In the second case, scenarios can be used when unexpected events occur that were not part of the S&OP plan.

For example, you can simulate the impact of: a strike that limited production capacity; a supplier that was unable to deliver; demand that suddenly spiked or fell off by 20 percent, etc.

“What-if” scenarios allow supply chain teams to model and analyze data to understand the impact of a change and determine the various course correction options prior to taking any action. Effective scenario management capabilities becomes critical in making adjustments to the plan between planning cycles -- essentially creating a capacity for real-time S&OP.

2. Financial Measurement and Reconciliation: Make it relevant to management

Operational objectives set by executive management are almost always expressed in financial measures (e.g. gross margin, cash-to-cash cycle, economic value-add, etc.), so supply chain managers need to convert the unit-based views of the front line into financial measures that are relevant to their superiors.

For example, the CFO in conjunction with the board may decide that the gross margin needs to be increased in order to meet industry benchmarks and market expectations. This may mean sourcing cheaper components from a more risky supplier with longer lead times and poorer on-time delivery. The supply chain needs to be able to evaluate what this would mean in terms of a balance between increased inventory costs and the potential impact on customer service.

Performance measures, both financial and operational, should be able to be ranked and then compared across scenarios to obtain a balanced scorecard and an objective way of determining the best set of scenarios to include in the executive revue during the S&OP process to understand competing objectives.

Effective S&OP processes provide insight about how the company is performing against key corporate metrics. But the most successful companies take this one step further by arming supply chain managers with the ability to know when such targets won’t be met -- and better yet, determine the root cause of such conditions and understand the course corrections options available through what-if scenarios.

3. Alerting: Find out earlier

The key to the effective adoption of S&OP is the tracking of key performance indicators (KPI’s) within the S&OP cycle to understand how the company is performing according to the financial targets. Early warning to the fact that certain KPI’s are projected to exceed tolerance levels allows the organization to take corrective action before they become a problem. For real value, alerting analytics need to take into account the domino relationship and cumulative effects of multiple events.

For example, while a supply order may arrive only one day late (which may be within tolerance from a supplier management perspective), the consequence could be that a major new order will be delivered later, or even worse, lost. This in turn might mean a downward trend for gross margin. Such an occurrence should cause an alert to be sent to a senior manager, allowing him to take appropriate action.

More importantly, there could be several small changes at the operational level, each of which is within tolerance and therefore does not generate alerts. However, the cumulative effect of these changes could be a five percent drop in revenue for the quarter, large enough to warrant executive attention.

4. Manage by Exception: That’s where it counts

Closely related to alerting is the capability to drill down to these exceptions which cumulatively cause a particular KPI to trend out of tolerance in order to understand the root cause of the out-of-tolerance condition. In the example above, the executive could identify all sales regions in which the projected sales revenue is below target. These can be ranked in order, allowing the executive to rapidly identify the regions on which to focus.

When contrasted to the common approach of performing ad hoc analysis and data extracts using spreadsheets, as adopted by many companies in similar situations, the improvement in productivity and effectiveness afforded by tools with an instant drill-down and data analysis capability is readily apparent.

The key is to enable companies to manage by exception, focusing primarily on the issues and “events” with the potential to negatively impact operational and financial plans and goals.

Think Outside The S&OP Box

So while there is no question that S&OP is a very effective and beneficial management tool, it was initially developed over 30 years ago when calculators were still something of a novelty and personal computers were the domain of hobbyists. We had to wait another decade for personal productivity tools such as Lotus 123 and Excel, nearly 15 years before effective graphical user interfaces were developed, and 20 years before the Internet began to have an effect of the way we conducted business.

Business has changed radically in the same time period. Thirty years ago, multi-national companies were still a relative novelty. They may have had sales organizations around the globe, but very few had operations in other countries. Add to that the pervasive trend of outsourcing that has taken place during this time, and it is clear that decision processes have changed.

Thus, the S&OP process -- which was designed to provide executives a forum for operational decision making in the absence of modern computing tools -- needs to be reassessed and updated to take advantage of more modern technology concepts and capabilities.

Still this is easier said than done. Organizational thinking is often inherently bound by the dimensions of the “box” it is currently in because people don’t question working assumptions strongly enough. It takes a lot of energy and political skills to overcome “process inertia” built up over the years within companies especially when the processes involve cross-functional teams and individuals at different levels of the organization.

Popular business press and sales and operations planning (S&OP) consultants will tend to advocate what has worked in the past (i.e. conventional tools and processes). Taken together, this results in organizations likely short-changing themselves when investing in S&OP.

Interest in S&OP tends to get hot when a crisis occurs because the organization understands that fundamental changes are occurring and S&OP is a tool to help them “get out of the mess.” The economic downturn is serving as a reality-check for organizations -- driving home the urgent need for re-assessing S&OP processes.

As a silver lining to the cloudy business climate, out of necessity can come great progress for survival and future prosperity for companies who take this opportunity to adapt their S&OP processes to the 21st century realities.

Kinaxis provides an on-demand supply chain management service that provides tools for supply chain visibility, demand management, S&OP, and supply chain risk management. For more information, visit http://www.kinaxis.com

The latest automation supply chain tools help companies avoid problems, or deal with them quickly if they do occur, to minimize damage to their brands.

When internal inspectors at Georgia Nut Co. discovered salmonella in the company’s pistachio products in March, they immediately instigated a product recall downstream to their customers—including Back to Nature Foods, a Wisconsin firm owned by Kraft Foods Inc. that used the nuts in trail mix—and launched an inquisition to locate and eradicate the source of the contamination.

Consumer confidence is a delicate issue, especially considering the recent spate of similar recalls affecting a variety of products, and executives understood the potential damage such an incident would do to the company’s brand. However, Kraft was prepared and had the ability to track and trace ingredients and products both downstream to retailers and upstream through its supply chain, and rapidly identified and recalled suspect shipments, and traced the contamination to its source—a supplier in California.

“As part of our food safety program, we have systems in place at both Kraft plants and external manufacturers that help identify potential issues before they become problems,” says Adrienne Dimopoulos, a spokesperson for Northfield, Ill.-based Kraft Foods. “We require extensive monitoring and quality testing throughout the production process, and we require that each supplier and external manufacturer have a food safety plan in place.”

Because Kraft caught the problem early, it was able to avert the potential damage to the company’s brand. However, other companies haven’t been as diligent about their supply chain practices, or as fortunate when issues arise.

More recently, Peanut Corp. of America (PCA), Lynchburg, Va., filed for bankruptcy under Chapter 7 in a Virginia court after salmonella in its products led to 600 people falling ill, and as many as eight deaths in the United States. Some 1,800 products were stripped from retail shelves in one of the largest recalls in U.S. history. The contaminant was traced to irrigation water at a Mexican farm that supplied the company. Under Chapter 7, the company liquidates its assets to repay creditors, rather than reorganize. PCA will cease to exist.

Risk exposure

These are just a few examples of risks that manufacturers are exposed to through their supply chains. Others include pathogenic outbreaks such as H1N1 flu (originally referred to as swine flu) closing factories or—even worse—borders; Somali pirates seizing the ship transporting your materials; earthquakes and hurricanes; wildly fluctuating transport and commodity prices; and, last but not nearly least, the economy. The survivability of one of your key component suppliers has become more than another “what-if” scenario in too many cases. And these are just the acute factors, the headline grabbers.

“Risk management has become a tremendous issue for the global supply chain,” says Bob Ferrari, an independent supply chain analyst and blogger. “[A severe incident] could literally take down your brand.”

The economic crisis has been particularly bad for manufacturers, says Ferrari. “In the age of Just-In-Time, a lot of companies really embraced Lean Manufacturing processes. When the downturn hit in the late part of 2008, production literally just stopped all over the globe. So now, basically, supply chains are sitting there without inventory, waiting for signs of recovery. In China, there are reports of thousands of factories that have shut down. This started in low-margin businesses like toys and apparel, and has spread to more robust industries like consumer electronics.”

Analyst Noha Tohamy at analyst firm AMR Research Inc., in Boston, agrees. Supply Chain Risk (SCR) has become one of her primary focus areas, and she conducts a quarterly survey of procurement executives to see what risks are top-of-mind and what strategies they are implementing to ameliorate them. “A lot of companies have seen a lot of their suppliers file for bankruptcy,” she says. For example, Toyota has more than 100 suppliers at risk of becoming financially insolvent.

The results of the most recent AMR survey, conducted in February, showed that reduced consumer spending had become the top risk. In December, this issue was a distant sixth, following rising fuel costs, rising transportation costs, commodity price volatility, intellectual property infringement and supplier product quality failures. “This was the first time a demand issue became the top concern. It’s usually on the supply side. [Supply chain managers] don’t know what demand is going to look like post-recovery. They need to plan for the recovery and don’t know how to change their manufacturing or sourcing because they don’t know what’s going to come next.”

Collaboration key

The top mitigation strategy in that survey was closer collaboration with suppliers. “People have been doing collaborative business continuity planning for a long time, but what’s really new is the granularity they are going to. Dual sourcing and multi-sourcing for critical components is also on the rise. They don’t want to be reliant on one or a few suppliers, so if something bad happens to them, they aren’t compromised,” Tohamy says.

Mike Mekanik is trying to address just such a risk right now. As a project manager with Virginia’s Philpott Manufacturing Extension Partnership, Mekanik is trying to design a program for a major shipbuilder supplying the U.S. government. “They have a supply chain of about 2,000 suppliers, down from 3,600 18 months ago,” he says. “They have some suppliers where they represent 80 percent of the supplier’s business. But in many cases where they represent a smaller proportion of the output, the rest of it has disappeared and they are in trouble. That’s really frightening for the shipbuilder because they can’t just snap their fingers and materialize another source of components.”

According to Ferrari, the whole multi-sourcing approach is in the middle of an economic tug of war. “In some industries where supply chain is seen as a cost of doing business (rather than a core skill), their first reaction to the economy is to reduce costs and squeeze the supply chain to reduce the number of suppliers they are supporting. However, that increases risk to the brand and to the business. Whittling down the supplier base isn’t a good idea. Maybe the ones you keep won’t survive the economy. Maybe they are cutting their own costs and that will impact their service to you. All of that is becoming part of the executive agenda and giving a lot of procurement people sleepless nights.”

“Generally speaking, companies don’t spend enough time with their suppliers,” says Julie Fraser, principal industry analyst and president of U.S. operations for Cambashi Inc., in Boston. She adds that with the recent H1N1 flu issue and reduced travel budgets, they will be spending even less in the foreseeable future. “People who have implemented some kind of collaborative tools will have a huge competitive advantage. The people who have made the investment are pointing to it and saying, ‘This is my pay-off.’ There are a lot of vendors that offer these kinds of systems, but our research indicates that they haven’t been spread deeply into the supply chain.”

In fact, Datacraft Solutions Chief Executive Officer Stephen Parker estimates that actual market penetration of any kind of kanban system is only around 20 percent, with less than 10 percent actually automated. Durham, N.C.-based Datacraft provides supply chain management solutions in a “software as a service” or SaaS, model. Parker says that in their rush to adopt Lean Manufacturing processes such as Six Sigma, many manufacturers have neglected the supply chain. “The build process is only one part of manufacturing. They’ve left out the supply chain.”

Attain traceability

Attilio Bellman, Ph.D., senior director, process industries, at Siemens IT Solutions and Services, in Norwalk, Conn., agrees with Parker’s estimates. “Even some packaging lines are very manual. The lack of control around track-and-traceability of products in the supply chain is a common denominator across all supply chains,” Bellman says. “I’ve visited many clients in the food industry. They don’t have automated ways to track recipes, for example. The work is mostly manual. The ability for very detailed track-and-trace of raw materials up and downstream is there. They just aren’t using it. People will tell you it’s OK to use manual solutions, but then they’ll tell you there are delays, and that they have to do larger recalls ‘to be sure’ they don’t allow contaminated or defective product into the market. I think companies generally don’t have the right tools in place.”

However, that is gradually changing. In November 2008, AMR Research estimated that the supply chain management applications market will grow by 7 percent annually for the next five years, from $6.5 billion in 2008 to $9.2 billion in 2012. Furthermore, AMR suggested that the global recession would actually drive supply chain technology adoption.

“We did some executive forums and found that most people we asked said they didn’t have a risk strategy,” say Andrew Kinder, director of product marketing for SCM at Alpharetta, Ga.-based Infor Global Solutions, an enterprise software supplier. “They assumed that SCR was about natural events like hurricanes. These things are graphic, but they don’t represent the biggest risk.”

“The acute conditions, like swine flu, terrorism and bad weather, are very hard to predict,” adds Trevor Miles, product marketing manager at Ottawa, Ontario, Canada-based supply chain management solutions provider Kinaxis Corp. “The odds of you predicting one of these issues and it coming to pass are very remote. On the other hand, the chronic, day-to-day risks like intellectual property protection, quality control and rising prices, are more predictable and more manageable. Customers, supply…that’s where you can make a lot of difference.”

Kinaxis, Infor and Datacraft all offer solutions that provide manufacturers with visibility into what is happening in their supply chains and the ability to collaborate more intimately with trading partners, something they universally agree is key to any mitigation strategy.

Risk management

According to Robert J. Schneider, managing principal, Risk Management, International Organization for Standardization (ISO), in Geneva, Switzerland, risk managers should work with senior management to embed risk management practices into all mission-critical points along the supply chain. The process should be a continuous engagement with the supply chain process for ongoing assessment and reassessment of the constantly changing supply chain environment.

Schneider identifies three key objectives of an effective supply chain risk management strategy:• Identifying and prioritizing critical business elements• Mapping the entire supply chain to show interdependencies• Identifying potential failure points along the supply chain.

“The ultimate goal of an effective and comprehensive SCR management strategy,” says Schneider, “is to embed risk awareness into all the core elements of the organization, from the C-suite through supervisors and department heads across the various supply chain functions.”

Adds Kinder, “You need to formalize the process of identifying the risks and building them into your plan. Build risk assessment into your day-to-day operations. Build it into the day-to-day process and make it part of everyday life.”

Kinder suggests four best practices for managing supply chain risk:• Make every employee a Risk Manager. Leading companies in every industry are implementing solutions that empower their executives, managers and staff to proactively manage risk and stay alert to opportunities.• Monitor and communicate corporate performance in real time. Enterprises must be equipped to quickly detect, notify and assign exceptions.• Provide a shared foundation that allows all stakeholders to collaborate to resolve risks.• Proactively measure performance and mitigate risk through continuous business process optimization. ]]> Recessionary times call for business intelligence-based insight to lean supply chain performance

Maintaining a lean supply chain during flush economic times isn't exactly easy, but staying lean during a recession times is tougher by far. In recent years, many companies could count on steadily growing demand, but the downturn has sent demand patterns plummeting in many industries, necessitating nimble short-term balancing of the supply picture against current demand in an effort to stay lean.

"The challenges with lean are more pronounced with the current economy," says Rick Jeffcoat, an application analyst with Hubbell, an Orange, Conn.-based manufacturer of electrical, power system, wiring, and lighting products. "When we started to see the downturn in housing starts last year, our forecasts were no longer relevant because the demand patterns had changed so drastically."

To keep the supply chain lean for its Hubbell Lighting division based in Greenville, S.C., says Jeffcoat, Hubbell is using supply chain decision-support and event-management software from Kinaxis to adjust short-term supply execution to current demand.

The Kinaxis RapidResponse package, says Jeffcoat, takes longer-term supply and material plans generated by the company's ERP system and analyzes them against current requirements, taking into account the cross-dependencies among parts, multiple suppliers for parts, and the latest demand requirements. The system also has an event-management component that allows Hubbell Lighting to alert suppliers to necessary changes in the supply plan.

"We are using the tool to more expeditiously identify what the current requirements should be on the supply side," says Jeffcoat. "We communicate back with suppliers using automated email that indicates which particular parts are needed today versus what we placed earlier."

Under lean manufacturing methods, actual demand, or a drawdown on a small buffer of finished goods, triggers the flow of materials via the use of pull signals. While many manufacturers have successfully implemented lean methods at the plant level, few have fully synchronized their operations with external suppliers.

But harsh economic times are forcing manufacturers and their partners to bridge the gap between planning and execution to achieve lean supply chains. To this end, diverse software packages are being used, from ERP suites that support Web services (see sidebar), to business intelligence (BI) software that can comb ERP and other data to analyze supplier performance and risk.

Further still are solutions for decision-support that allow rapid adjustment of supply and demand plans, or sales & operations planning (S&OP) modules.

Kerry Zuber, a director for Kinaxis, sees manufacturers scrambling to realign supply plans with demand. This often involves taking material plans and supplier data from an ERP system and analyzing that data in a decision-support tool against the latest demand picture.

"This downturn has been so radical that it is forcing companies to look more frequently at adjustments to both their forecasts and the rightsizing of their supply chains," Zuber points out.

At Hubbell Lighting, for instance, material plans and supplier data are held in an SAP ERP system, while the supply readjustment insights are made using RapidResponse. While the ERP system is effective at inventory management and material planning, explains Jeffcoat, the material planning logic in the ERP system tends to focus on part and item-level data rather than the fuller range of cross-dependencies that RapidResponse can examine, such as which orders are affected by changes to supply plans, and if there are multiple suppliers for a part, which ones need alerts.

In the past, says Jeffcoat, Hubbell planners tried pulling ERP data into other tools like Excel to examine material planning exceptions and make adjustments, but that analysis still left planners with the need to communicate changes to suppliers.

"While you may be able to examine supply order data with other tools, you've still got another step to conduct the communication and collaboration," he says. "Kinaxis ties those decision-support and collaboration functions together."

The lean supply chain goal underscored with RapidResponse, says Jeffcoat, ensures that Hubbell's suppliers don't build up components that won't be needed if demand suddenly subsides. The potential danger without this analysis is a buildup of excess inventory because suppliers only have rigid component orders generated by traditional material planning that drives plans around longest lead-time items.

"We need to get the message out to our suppliers that they shouldn't be consuming their resources building items A and B for us when what we really need from them are items C and D," says Jeffcoat.

RapidResponse also is used to support order promising "what-ifs?" such as comparing current orders to inventory on hand or projected supply. Since the RapidResponse engine also holds forecast, order, and supply data, output from the solution is useful for Hubbell Lighting's S&OP process.

But the main use of the software, Jeffcoat says, is to support a leaner, just-in-time supply chain. "In these times, we need to be very conscious of what our supply signals are driving us to do with inventory," he says.

Another form of decision support for lean supply chains takes aim at supplier performance. BI software is helping Vicor Corp. with such monitoring and analysis. The Cognos BI platform from IBM also has event-management capability that supports aspects of lean supply execution.

Vicor, an Andover, Mass.-based maker of power-conversion components, uses the Cognos 8 suite for supplier performance tracking, analyzing supplier risk, and proactively reviewing yield variances on upcoming production plans, according to Joe Jeffery, Vicor's director of manufacturing systems.

The BI suite's event-management and alerting functionality even combs inventory and material management characteristics in Vicor's ERP system—such as minimum inventory levels being neared—and sends alerts to suppliers.

"It reacts to those [characteristics] selectively and then sends out email bursts to suppliers upstream where they need it," says Jeffery.

Vicor uses the PeopleSoft ERP suite from Oracle Corp. to generate materials plans, and a manufacturing execution system (MES) to handle production execution. But the BI suite plays an active role on the shop floor as well, due to manufacturing metrics and key performance indicators that track production performance, drawing on data from the MES and ERP.

Another set of BI functionality analyzes upcoming production runs being planned in ERP. It looks at all the items that will be built, and compares standard yield data for the items with a rolling 13 months of actual yield data.

The yield graphics in this "Production Planning BI" tool visually display which planned items have exhibited stronger variances in the recent past. The visuals help engineers pinpoint process steps that may require troubleshooting.

"You don't want any surprises when you get to the shop floor to build things," says Jeffery.

With the tough economy truly showing itself in late 2008, Vicor began using the BI software to do supplier risk assessments.

"We have an awful lot of suppliers for raw materials, and in lean times, we must ensure we are not sole-sourced with a supplier that may go belly up," Jeffery says.

The BI suite also is used for scorecards on supplier performance, such as which suppliers offer the shortest lead times, and best adhere to lead-time promises. These decision-support tools, says Jeffery, were built by business system analysts at Vicor using IBM Cognos 8, rather than being custom-coded by developers.

While the BI solutions were relatively simple to build, their core benefit is helping Vicor meet its supply chain requirements with minimal stock, and avoid surprises that lead to waste.

"When you didn't order enough materials ... or you ordered too much," Jeffery concludes, "you know that either case is just awful from a lean perspective."

Since S&OP is a multi-departmental business process, it's bound to evolve. For many companies, it began as a tactical process to balance supply with demand. In the early stages, sales and forecasts often drive operations plans, so most demand-planning providers have experience supporting the process. As the process matures, companies recognize the need to bring warehousing and production in as full partners in the process.

With the credit crunch and market volatility, inventory must be central to the plan as well. In fact, in Europe, S&OP is commonly called sales, inventory and operations planning (SIOP). Both tactical and strategic inventory management are involved in effective S&OP.

Now S&OP is moving into a far more strategic realm. Companies are learning to drive activities throughout the company to better match financial goals and corporate objectives. As that occurs, the CEO and CFO should become involved as well.

While S&OP is a business process, not a software application, supply chain software is essential to supporting a mature S&OP process. Some of the key characteristics to look for in software to support strategic decisions are increasingly common:

Integration. Look for integration among data sets with master data management from broad suite supply chain management and ERP vendors such as i2 Technologies, Infor, JDA, John Galt, Logility, OM Partners, Oracle, Prescient, and SAP. S&OP was the foundational concept behind Supply Chain Consultants' Zemeter suite.

Analytics. Data analytics to support the multiple views and "what-if?" analysis inherent in S&OP can be in a larger suite, or an addition. Specialist supply chain analytics come from IBM's Cognos, Pelyco Systems, River Logic, and SAS, among others.

Fast-moving forward views. In today's market, many companies are making changes to plans well within their forecasting horizon. Specialists such as Kinaxis, Right90, and Terra Technology that deliver short-span, frequent forward-planning views can support improved S&OP accuracy and timeliness too.

Inventory coverage. Inventory optimization is different from other planning in that it uses stochastic or probabilistic planning. Rather than a single inventory need number—which is bound to be wrong—these tools provide a range to improve inventory availability. Companies using stochastic methods in software include IBM's ILOG, Llamasoft, Optiant, and SmartOps. ToolsGroup announced SO99+ this year—a supply chain planning suite with stochastic logic at its heart, not only in an add-on inventory optimization module.

No matter how mature your S&OP process is, it's likely you will need to conduct the process more frequently and with more granularity. As C-level executives leverage the output of S&OP meetings to help the business succeed, the process will continue to improve and mature. Be sure your people and software systems are ready.

"We started going to our contractors and asking for their contingency plans," says Dadmun, who was then vice president in charge of Adtran's supply chain. "What would they do if there were an electricity shortage? Then we started asking ourselves what we would do if we suddenly had to find another contractor. It was the first time we'd had to think seriously about those kinds of risks."

But it wasn't the last time, not by a long shot. Although bird flu — at least so far — hasn't caused the business disruptions once feared, Adtran officials took the scare as a wake-up call. They began to explore other risk scenarios that could undermine Adtran's extended supply chain, and they began to put in place contingency plans to mitigate those risks. "Since then, much more of our focus has been on risk avoidance and mitigation," says Dadmun, now Adtran's program management office vice president. "It's become an unavoidable reality."

Dadmun certainly isn't the only manufacturing executive obsessing over the myriad things that can blow up, blocking their companies from quickly and profitably responding to demand. The globalization of most manufacturing businesses has made supply networks less visible and more vulnerable to disruptions. And a series of unprecedented and uncontrollable global events — from the worldwide recession, to gyrating energy prices, to high-profile product quality scandals — have combined to make supply chain executives feel that they are perched precariously on a high wire in a risk windstorm.

As a result, experts say, savvy manufacturers realize that managing a supply chain today requires much more than simply seeking out the lowest-cost suppliers or generating a demand plan based on historical patterns. It also demands understanding all the risks to which your supply network is exposed, creating early-warning systems so that you'll know when risk is about to become reality, and having workable response plans in place.

"The impetus for understanding and preparing for supply chain risk is coming from up and down the enterprise today," says Kevin McCormack, president of DRK Research and a professor at North Carolina State University. "CEOs and other C-level executives want to protect their companies from loss of market capitalization, a very real threat. And the folks in the trenches want to be more informed about risk so they can mitigate them before they have to clean up the mess."

The consequences of unmitigated supply chain risk can be messy indeed. According to a recent study by PriceWaterhouseCoopers, public companies announcing supply chain disruptions have seen their share price fall an average of 9% in the first two days compared with a benchmark group of companies. The study also found long-lasting effects. Two years after an incident, share prices of companies that experienced supply chain disruptions were almost 19% lower than the benchmark average.

And that's just the impact on share price. Manufacturers worry that supply chain risk can also lead to higher production costs, finished goods shortages, quality disasters, and, in the end, unhappy customers and irreparable harm to brand equity.

In a well-documented 2000 case, a 10-minute fire at a Philips semiconductor plant in Albuquerque, NM, contaminated millions of chips and delayed deliveries to customers, which were primarily makers of mobile phones. One of those customers, Ericsson, later reported a $400 million loss resulting from the delayed chip shipments.

Manufacturers are well-aware of such horror stories. In a recent Managing Automation reader survey, 54% of manufacturers reported that their companies face substantially more or somewhat more risk today than a year ago (Supply Chains: Reader Poll). And 63% said they expect their company's focus on supply chain risk to increase over the next 12 months. Manufacturers said supply disruption represents the most significant risk. And they said the most common consequence of rising supply chain risk is higher production costs, followed by increased inventory costs and decreased customer service.

Certainly the range of supply chain risk factors keeping manufacturers awake at night is on the rise. The worldwide recession, which has undermined credit, sapped consumer confidence, and threatened the survival of manufacturing giants such as General Motors and Chrysler, is the latest example. Manufacturers increasingly worry that the failure of even one such giant could undermine the health of key suppliers and compromise the supply networks of even otherwise healthy companies.

And, considering the pervasiveness of the economic crisis, manufacturers say they are concerned about the health of suppliers even two and three levels down, not just in tier one.

"In the current environment, we need to be able to see into our second- and third-tier suppliers because we are concerned with where the materials are coming from because we've seen multiple suppliers file Chapter 11 or 7 [bankruptcy]," says Bill Forbes, director of supply chain technology at defense contractor Raytheon. "We've never had to manage that way before."

Other potential risks swirl around manufacturers. Economic turmoil, besides threatening suppliers, makes it difficult to predict customer demand. Yo-yoing fuel and energy costs make it impossible to predict production and transportation costs. Likewise, rising labor costs in once low-cost countries, such as China and Brazil, make it difficult to optimize supply networks. And social and political turmoil — such as the recent terror attacks in Mumbai, India — threaten supply networks in the most unpredictable ways. If that weren't enough, tougher environmental and trade regulations increase the risk that suppliers will run into problems or that a critical shipment will languish on a dock somewhere.

"All of these risk factors are shocking the system," says AMR Research analyst Noha Tohamy. "Manufacturers don't know what's coming next. As a result, most are trying to account for risk in more explicit ways when making decisions about their supply chains."

Besides facing a wider range of potentially damaging risk factors, many manufacturers find themselves more vulnerable to potential supply chain disruptions than ever. Three broad trends are to blame for that.

First, many manufacturers have spent the past few years moving production offshore, often outsourcing it. While this has reduced labor costs, it has also lengthened lead times and reduced supply chain visibility, making it more difficult to recover from disruptions. Globalization has also made it more difficult for manufacturers to know as much about the capabilities of their suppliers as they once did.

Second, many manufacturers have spent the past few years leaning out production and supply processes. In many cases, they are operating with much less inventory and safety stock, leaving them more susceptible to supply disruptions.

"The kinds of supply chain risks now facing manufacturers weren't as heavily considered when companies first decided to launch lean initiatives," says John Simrose, a principal in Deloitte Consulting's supply chain practice. "Now, we see many taking more of a balanced approach. They want to get to one-piece flow, but they also want to carry enough buffer inventory so a disruption doesn't bring the whole plant down."

The third trend leaving manufacturers more exposed to supply chain risk, experts say, has been a widespread move to strategic sourcing. In the pursuit of lower material and testing costs and better intellectual property protection, manufacturers have significantly reduced the number of suppliers with which they work.

Adtran, for example, has cut its suppliers from 400 to 150 in the past few years. And the ASIC chip at the core of the company's communications products is single-sourced. But that makes Adtran more dependent on key suppliers and more exposed should a supplier run into a problem. "That means we have to put more risk avoidance analysis into working with those suppliers," Dadmun says.

Taking Stock

All of this has caused manufacturers to take a long, hard look at how they consider risk when making critical supply chain decisions and whether they can respond quickly when risks become real. In many cases, experts say, manufacturers haven't liked what they've seen.

North Carolina State's McCormack conducted a study of whether manufacturers are satisfied with their supply chain risk management capabilities. Perhaps not surprisingly, he says, "Nobody was happy with the approach they were taking. Risk detection, for the most part, was too late, and reaction was too little."

Indeed, Managing Automation's reader poll suggests that manufacturers are just beginning to put significant, coordinated resources into managing supply chain risk. While 72% of respondents said they have mitigated some supply chain risk, only 20% said their companies have developed formal, enterprise-wide processes for understanding and mitigating risk. Most said they are either now in the process of formulating enterprise risk strategies or pursuing risk strategies on a business unit-by-business unit basis.

A good starting point would be to rethink the supplier selection process with risk in mind, experts say.

"The most critical thing that suppliers should pay attention to is who their suppliers are," says Jim West, a senior managing director at PwC. That means you know that your supplier's interests are aligned with yours, that your supplier is capable of performing to the level you expect, and that you have structured a relationship in which accountability is explicit.

Electronics manufacturing services provider Celestica Inc. has developed a comprehensive, risk-based supplier selection process that it calls BOM (Bill of Materials) Risk Analysis. The $2.2 billion maker of electronic components starts by conducting a detailed analysis of the BOM its OEM customers provide prior to production. Celestica looks at potential red flags such as the percentage of parts that are single-sourced, the percentage of parts with cycle times longer than eight weeks, and the percentage of components that are of an older design and may be hard to replace.

In a second level of analysis, Celestica looks at suppliers' financial health and security. The company gathers from suppliers and third-party sources such as Dun & Bradstreet information on suppliers' financial condition and whether they have processes in place to quickly replace their suppliers if that became necessary. For BOMs that carry a high level of risk, Celestica recommends replacing specific suppliers.

This type of analysis — particularly the focus on supplier financial health — has become particularly important, says Celestica Vice President of Supply Base Solutions Harvinder Sembhi, as the recession has begun to threaten smaller suppliers. "In some cases, as manufacturing has shifted to Asia, a lot of the suppliers we are dealing with are not the global powerhouses that we have used in the past," Sembhi says. "So increasingly we have to dig into things like whether they are in good financial shape, whether they have access to the tooling we need, and whether they have alternative sources of supply."

North Carolina State's McCormack has gone further, creating an analytical model and a set of 38 qualitative questions that manufacturers require suppliers to answer in order to predict whether a potential supplier will introduce too much risk into the supply chain. McCormack compares the analytical tool and questions to eHarmony.com, the popular matchmaking Web site. "We figured if they can predict the success of a marriage, we should be able to predict the success of a supply relationship," he says.

McCormack's questions probe things like the degree of alignment between the suppliers' and manufacturers' interests, supplier performance variability, the level of turbulence in the supplier's environment, and the supplier's perception of its customers. McCormack's team has worked with large manufacturers for the past two years to validate the model. It turns out, he says, that suppliers' low opinion of their customers has the highest correlation with bad supplier performance.

Besides taking care in selecting suppliers, manufacturers should closely monitor supplier and supply network performance, putting in place processes and systems that improve visibility and deliver early warnings at the first sign of a breakdown, experts say.

"It's much easier to take early corrective action than it is to have to replace a supplier after something has gone terribly wrong," PwC's West says. "If you have to act after the fact, you're looking at removing your [intellectual property] from one supplier and moving it to another, and that's where it gets expensive."

Raytheon, for one, is combining real-time supply network performance visibility with dashboards that alert buyers and supply chain managers when a supplier appears to be running into problems. Over the past few years, the defense contractor has been moving routine transactions that flow between it and its suppliers to a secure network operated by Exostar LLC. On the network, suppliers exchange MRP schedules with Raytheon, change production plans, and send advance shipping notices, among other things. Now, Raytheon is adding analytics and dashboards that will tell managers the minute something goes wrong.

"We are identifying the exceptions and triggers that are most important to our supply chain managers and around which they can build mitigation plans," Forbes says.

Grayling Industries, a maker of plastic container liners, is taking a similar approach. Until recently, the company had little real-time visibility into how much material was available from suppliers or where it was located. Key suppliers typically used third-party warehouses to store material and provided weekly stocking-level reports. As demand fluctuated and transportation costs rose, the lack of up-to-date information about material availability and location presented a growing risk.

Last year, to cut costs and better coordinate supply with demand, Grayling implemented a new consignment inventory process. Suppliers now store materials directly in Grayling's El Paso, TX, warehouse and are paid on a 60-day consignment basis. A min-max system controls stocking levels. Also, an on-demand warehouse management system from SmartTurn Inc. provides suppliers and Grayling with real-time alerts as material levels change. Now, says Grayling Director of Finance and Operations Carlos Rubio, the company can see immediately if a supplier is having problems.

Preventing Panic

In addition to real-time visibility and early-warning alerts, manufacturers' supply chain risk management frameworks must include detailed plans for mitigating and remediating specific risk situations, experts say. Such planning doesn't necessarily require much technology, but it does require the participation of cross-functional teams that can create a holistic view of the impacts that specific risks might bring and plans for mitigating them.

"You need to be able to look at and understand the interdependencies across the entire supply chain before you can start to analyze what risk looks like and the right steps to mitigate it," says AMR's Tohamy.

Integrated circuit device manufacturer On Semiconductor two years ago put together a cross-functional working group that is called together whenever a major supply chain risk is identified. The group, which includes the heads of operations, planning logistics, channel management, and services, gathers information from plant managers and others on the front lines, and explores various responses to the specific threat. The group also is responsible for communicating mitigation plans both inside and outside the company.

"We want to quickly address the risk at hand without inspiring panic," says Ravi Vancheeswaran, director for global service operations at On Semi.

Most recently, On Semi's risk response team went into action following the devastating earthquakes that hit near Chengdu in China last May. The company has a factory two hours away from the affected area. The team called on local factory managers to determine, first, whether any employees were directly affected and, second, to what extent logistics breakdowns were likely to create bottlenecks. The team identified alternative transportation options, including the airlift of product, should that become necessary, Vancheeswaran says.

While, in most cases, such mitigation planning is mostly about people sharing knowledge and collaborating, technology can help. Increasingly, manufacturers are using simulation and scenario planning software to evaluate the possible costs and other consequences of mitigation options. On Semi, for example, uses a set of scenario planning tools developed by i2 Technologies to plan responses should customer demand for its products suddenly shift up or down.

Similarly, lighting manufacturer Hubbell Lighting Inc. uses what-if planning tools from Kinaxis to simulate what the impact would be if demand were to suddenly shift or the company had to switch suppliers. That kind of analysis has proven particularly important recently, says Rick Jeffcoat, Hubbell's operations analyst, as the recession has frozen housing starts and significantly reduced demand for some of Hubbell's products.

The ability to do detailed what-if scenario analysis, particularly analysis of the financial impact of different mitigation options, will be critical as the types of risks continue to change rapidly, says AMR's Tohamy. Risks such as moving production into a new market or aligning with a sole-source supplier often bring rewards, so they may be worth taking if the cost of mitigation is not too high.

"Ultimately what you want is to be able to understand the upside that taking a given risk might introduce and the trade-offs involved," Tohamy says. "It's not just about avoiding risk altogether."

Ottawa, Canada, March 24, 2009 – For the fourth consecutive year, Kinaxis, provider of the on-demand supply chain management service, RapidResponse™, was recognized in Supply & Demand Chain Executive’s Provider Pros to Know list. The Company’s co-founder and vice president of analytics research, Duncan Klett was selected for his continued contributions to the supply chain industry and innovative approach to helping customers realize bottom-line savings and competitive advantages.

Supply & Demand Chain Executive Provider Pros to Know is a listing of individuals from a software firm or service provider, consultancy, or analyst or research firm who have personally helped clients manage risk in the supply chain, provided competitive advantages and/or delivered value to the bottom line. The complete list of Provider Pros to Know is published in the February/March 2009 issue of the magazine.

At Kinaxis, Klett helps develop the tools supply chain professionals use to plan, monitor and respond to unplanned changes in supply and demand, empowering them to achieve improved customer satisfaction and operations performance. His philosophy is based on a belief that traditional planning and execution need to merge. Execution should be based on frequent, and virtually instantaneous, “re-planning” enabled by software that consolidates supply and demand data and provides visibility and analysis capabilities to a broad base of users throughout the extended supply chain.

According to Klett, “The key in such turbulent times is not to try and create THE optimal demand or supply chain plan — since they only exist in theory — but rather to monitor adherence to the plan and to provide an environment in which users can respond to deviations and surprises in a collaborative and informed manner. It’s exciting to not only see how well this approach resonates with our clients, but to be recognized for it by Supply & Demand Chain Executive.”

“This distinct honor is a testament to the industry-leading expertise Duncan Klett possesses,” said Douglas Colbeth, CEO of Kinaxis. “Duncan is a true thought-leader in the supply chain industry, and takes an innovative approach to designing next generation product features that provide real value to our clients. Duncan has worked directly with many of our customers helping them realize significant competitive advantages using RapidResponse.”

In today’s economic climate, it is more essential than ever for organizations to streamline their supply chain processes and implement cost-effective methods for managing the risks associated with market volatility. With more than 30 years of experience with analytics and software solutions, Klett conceives of and builds the innovative product features that help brand owners and manufacturers manage the increasing complexity of their global supply chain network and realize significant supply chain successes.

The full 2008 Pros to Know listing is available on the Supply & Demand Chain Executive website at www.SDCExec.com.

About Kinaxis

Kinaxis™ helps manufacturers manage increasing business complexity and achieve operations performance breakthroughs with its proven solution for demand and supply chain planning, monitoring and response. Kinaxis RapidResponse is an on-demand service that enables collective risk tradeoff and response to change by empowering front-line decision makers with integrated tools for supply chain visibility, demand management, supply management, sales and operations planning (S&OP) and supply chain risk management. Global leaders such as Casio, Jabil, Qualcomm, and Raytheon are delivering superior customer service and gaining competitive market advantage with RapidResponse. For more information visit www.kinaxis.com, or the Kinaxis blog at www.21stcenturysupplychain.com.

Ottawa, Canada, March 11, 2009 —

News Facts:

• The Supply Chain Expert Blog Series launches as the premier roundup of thought provoking ideas and unique perspectives on today’s most pressing supply chain management issues from the industry’s top supply chain thought leaders.
• The series is hosted on the 21st Century Supply Chain, a popular industry blog, and will feature a weekly Q&A with experts including top research analysts, consultants and key members of industry associations, academia and press.
• The Q&A series kicks off with insight from Bruce Richardson, Chief Research Officer, AMR Research. In his post, Richardson comments on the declining economic climate and what specific supply chain initiatives can be applied in the short term to have greatest effect on a company’s financial performance and sustainability.
• Consistent with the mission of the 21st Century Supply Chain blog, the expert Q&A series will explore relevant and compelling industry issues, such as:
• The economic downturn and its affect on the supply chain and supply chain risk management strategies
• The government stimulus package and its impact on the industry landscape
• Supply chain management trends including outsourcing, integration and globalization
• On-demand / Software-as-a-Service
• The blog series is brought to you by Kinaxis, providers of an on-demand supply chain management service, RapidResponse™ which empowers multi-enterprise manufacturers with the collaborative and integrated demand-supply planning, monitoring, and response capabilities required in today’s complex and dynamic business environment.

To Subscribe:

For free access to the entire Supply Chain Expert Blog Series, please visit the 21st Century Supply Chain blog and sign up for email, twitter or RSS updates.

Featured Guests:

Some of the experts that will be featured in the Q&A series include:

Corey Billington, Professor, Procurement and Operations Management IMD Global Business School

David Blanchard, Editorial Director Material Handling Management and Outsourced Logistics

Abe Eshkenazi, CSCP, CPA, CAE, Chief Executive Officer APICS The Association for Operations Management

Clarence Chen, Principal PRTM

Colleen “Coco” Crum, Managing Principal Oliver Wight Americas, Inc.

Simon Ellis, Practice Director, Supply Chain Strategies Manufacturing Insights, an IDC Company

Bob Ferrari, Managing Director The Ferrari Research and Consulting Group

Mary Hayes Weier, Editor At Large InformationWeek.com

Robert D. Kugel, CFA, SVP & Research Director, CFO and Business Research Ventana Research

Larry Lapide, Ph.D., Director, Demand Management, Massachusetts Institute of Technology (MIT) Center for Transportation & Logistics, and Research Director, Demand Management Solutions Group (DMSG)

Gary Lynch Global Leader, Supply Chain Risk Management Practice Marsh

Andrew K. Reese Editor, Supply & Demand Chain Executive

Bruce Richardson, Chief Research Officer AMR Research

Nari Viswanathan, VP, Principal Analyst, Supply Chain Strategy & Planning Aberdeen Group

About Kinaxis

Ottawa, Canada, February 3, 2009 — Kinaxis™ Inc., provider of the on-demand RapidResponse service that empowers multi-enterprise manufacturers with the collaborative and integrated demand-supply planning, monitoring, and response capabilities required in today’s complex and dynamic world, continues to experience solid business momentum, and looks to 2009 as a year of continued growth.

Financial Performance 2008 was another strong year for Kinaxis as it saw its subscription revenue more than double from 2007. Kinaxis closed 2008 with a strong, positive cash flow.

Growth was driven by both new customer acquisition and existing customers expanding their global deployments to include more manufacturing sites and users. Customers announced in 2008 and to-date in 2009 include Lockheed Martin Corporation, Nikon, Pioneer Corporation, Harris Stratex Networks, Microelectronics Technology Inc (MTI), Toshiba Matsushita Display Technology (TMD) and BreconRidge.

“Building on another outstanding year, 2009 will be a year of investment in our continued growth and evolution,” says Douglas Colbeth, Chairman and CEO of Kinaxis. “While the recession is grave, it enables us to clearly differentiate ourselves, as the economy acts as an accelerant for on-demand services. In a down market, operations performance goals (inventory cost reductions in particular), and customer retention and satisfaction are more important than ever. Organizations will look to affordable, quick-to-implement solutions where their investment closely coincides with their return. The need for a mission-critical service to manage global supply chains cannot be ignored in today’s unforgiving business environment.”

Product Innovation Kinaxis continues to demonstrate its leadership through market-driven product innovation. In 2008, Kinaxis introduced new RapidResponse capabilities purpose-built to address the unique challenges faced by sales, customer service and demand management organizations.

The sales and operations planning (S&OP) and demand management functionality has become critically important as the economic downturn creates extreme demand volatility challenges. The increased risk is forcing companies to look at demand differently. The precipitous drop in demand for some industries has made demand planning based on historical trends irrelevant or impossible. Front-line responders must be empowered to resolve daily, unexpected demand change while balancing customer satisfaction and operations performance objectives.

Market Opportunities Kinaxis RapidResponse is a single on-demand offering for solving multiple supply chain challenges in multiple industry sectors and market segments. Furthering this strategic imperative, the company is focusing its efforts in 2009 on expanding its target universe by broadening its industry vertical focus and more directly pursuing the small and medium business (SMB) market.

Industry Recognition and Credentials Kinaxis announced in October that it successfully completed its first SAS 70 Type II Examination. This widely recognized audit standard will help Kinaxis customers and their auditors to address the requirements of Sarbanes-Oxley.

Recognition of Kinaxis in the marketplace was evident by awards of distinction by Supply & Demand Chain Executive 100 and most recently, Intelligent Enterprise’s 2009 Editor’s Choice Award. In addition, Kerry Zuber, the company’s director of business consulting, was honored as a “Pro to Know” by Supply & Demand Chain Executive.

Recognition of Kinaxis as an expert resource is also evidenced by a growing reader base for the company’s 21st Century Supply Chain blog and the recent introduction of its Manufacturing Central industry news site.

Corporate Philanthropy Outside of its business achievements, Kinaxis was also proud of its role as a corporate leader for mental health in 2008 through contributions to the Colbeth Child and Adolescent Psychiatry Clinic in Chicago– a clinic established by Kinaxis CEO, Douglas Colbeth and his wife, Margaret, as well as sponsorship of the Royal Ottawa Foundation for Mental Health’s “you know who i am” awareness campaign. Kinaxis is honored to help lead the charge for raising awareness and erasing the stigma associated with mental health disorders.

About Kinaxis

Kinaxis™ RapidResponse is a single on-demand service that empowers multi-enterprise manufacturers with integrated demand-supply planning, monitoring, and collaborative response capabilities. RapidResponse embraces human judgment to enable planners and front-line responders to handle unpredictable changes. Global leaders such as Casio, Jabil, Qualcomm, and Raytheon use RapidResponse to achieve breakthroughs in sales and operations planning (S&OP), demand management, supply management, and supply chain risk management. The results are superior customer service, improved operations performance, and a competitive market advantage. For more information, visit the Kinaxis web site at www.kinaxis.com or the company’s blog at www.21stcenturysupplychain.com.

Lockheed Martin Aeronautics is engaged in the design, research and development, systems integration, production, sustainment, support and upgrade of advanced military aircraft, air vehicles and related technologies. Its customers include various government agencies and the military services of the United States and allied countries around the world. Major products and programs include the F-35 stealth multi-role international coalition fighter; the F-22 air dominance and multi-mission stealth fighter; the F-16 multirole fighter; the C-130J tactical transport aircraft; and the C-5 strategic airlifter. Lockheed Martin is a major supplier of logistics systems and lifetime support and performance-based logistics services to military and civil government customers. The corporation provides solutions for platform maintenance, modifications and repair, material readiness and distribution, and global supply chain command and control.

Lockheed Martin Aeronautics chose RapidResponse because the solution will help complement their highly complex supply chain infrastructure in dynamically aligning demand and supply. With RapidResponse, a broad base of users are able to access accurate and detailed supply chain information in an easy-to-use spreadsheet interface that is embedded with powerful MRP analytics and automatically populated with live data feeds from ERP and planning systems across the extended enterprise. With the initial deployment of RapidResponse scheduled for early 2Q09, supply chain participants across various functional groups will be able to model ERP/MRP data to instantly simulate, share and score countless "what-if" supply and demand scenarios.

Bob Rearden, Aeronautics Vice President of Supply Chain Integration at Lockheed Martin offers that, ”In the near term, RapidResponse will aid us in prioritizing replenishments as we provision material consumption on the factory floor. Long term, we envision using this tool to enhance our reporting and decision-making capabilities.”

“To compete in the extremely competitive global A&D market, companies must be able to use their inventory and engineering resources efficiently, deliver greater value and be more responsive to their customers’ needs than ever before,” said Randy Littleson, vice president of marketing at Kinaxis. “We are proud that RapidResponse has become a proven solution to a multitude of pressing supply chain management challenges in the A&D market, as it has in other industry verticals.”

About Kinaxis

Kinaxis™ RapidResponse is a single on-demand service that empowers multi-enterprise manufacturers with integrated demand-supply planning, monitoring, and collaborative response capabilities. RapidResponse embraces human judgment to enable planners and front-line responders to handle unpredictable changes. Global leaders such as Casio, Jabil, Qualcomm, and Raytheon use RapidResponse to achieve breakthroughs in sales and operations planning (S&OP), demand management, supply management, and supply chain risk management. The results are superior customer service, improved operations performance, and a competitive market advantage. For more information, visit the Kinaxis web site at www.kinaxis.com or the company’s blog at www.21stcenturysupplychain.com.

Ottawa, Canada, January 20, 2009 – Kinaxis™ Inc., provider of the on-demand RapidResponse that empowers multi-enterprise manufacturers with the collaborative and integrated demand-supply planning, monitoring, and response capabilities required in today's complex and dynamic world, was recently selected by InformationWeek Business Technology Network's Intelligent Enterprise as a "Company to Watch" for 2009, recognized for providing exceptional vision, technology innovation and customer leadership in attaining strategic objectives.

Kinaxis is featured among a list of 48 of information technology's most influential and innovative companies, and is one of only four companies honored under the Performance Management category.

The Kinaxis listing cites: "Software as a service shines when collaboration crosses geographies and organizational boundaries. Kinaxis provides a SaaS-based performance management application that helps companies improves sales and operations planning as well as supply chain visibility."

Because Kinaxis RapidResponse is a single service that solves multiple supply chain challenges, it provides opportunity to help reduce operating costs across the business, while streamlining an organization's applications footprint. The continued downward pressure on IT budgets combined with the shifting dynamics of today's business environment has created an environment ideally suited for on-demand supply chain management service offerings. The RapidResponse solution offers a unique combination of tangible benefits to IT (costs savings and low IT resource requirements) as well as to the business (sophisticated computing solution specifically designed to excel within today's global and collaborative supply chains).

"We are extremely grateful for this award," said Randy Littleson, vice president, marketing at Kinaxis. "To receive independent recognition from such a well-respected resource for enterprise technology is truly an honor."

The award selection was a collaborative endeavor, with extensive input from 12 Intelligent Enterprise contributors, each of whom are considered experts in their respective fields. Intelligent Enterprise Editor-in-Chief Doug Henschen was responsible for the final selection of award winners. A complete list of this year's honorees appears on Intelligent Enterprise's Web site at http://www.intelligententerprise.com/showArticle.jhtml?articleID=212800112.

Intelligent Enterprise is part of the InformationWeek Business Technology Network – a power network of industry-leading and trusted brands that provide professional business technology buyers with the information, perspective and tools they need to make optimal technology decisions.

About Kinaxis

Kinaxis™ RapidResponse is a single on-demand service that empowers multi-enterprise manufacturers with integrated demand-supply planning, monitoring, and collaborative response capabilities. RapidResponse embraces human judgment to enable planners and front-line responders to handle unpredictable changes. Global leaders such as Casio, Honeywell, Jabil, Qualcomm, and Raytheon use RapidResponse to achieve breakthroughs in sales and operations planning (S&OP), demand management, supply management, and supply chain risk management. The results are superior customer service, improved operations performance, and a competitive market advantage. For more information, visit the Kinaxis web site at www.kinaxis.com or the company's blog at www.21stcenturysupplychain.com.

With all eyes on the economy, smart enterprises will have to make the most of technology to outmaneuver the competition and navigate the shoals of a challenging marketplace. The competition will be fierce, and it's more important than ever for companies to make the most of information and deliver timely insight, to quickly adapt applications and processes to changing conditions, and to maximize financial and operational performance.

Technology complacency is not an option if you expect to outsmart the competition; nor is this a time for heedless investment without specific goals for competitive advantage or return on investment. To guide you to vendors that have been leading the way in innovation and business optimization, we present our 10th Annual Intelligent Enterprise Editors' Choice Awards. We considered scores of companies that are helping organizations move toward the ideal expressed by our publication's name, Intelligent Enterprise. In our estimation, all 48 companies that made our Editors' Choice list are leaders, but a select group of 12 were named among "The Dozen" elite companies that will matter most to intelligent enterprises in 2009.

COMPANIES TO WATCH: PERFORMANCE MANAGEMENT

Kinaxis. Software as a service shines when collaboration crosses geographies and organizational boundaries. Kinaxis provides a SaaS-based performance management application that helps companies improves sales and operations planning as well as supply chain visibility.